‘Breathing Space’ Around Debt – Is It Enough?

If you live in Scotland and are facing debt problems, you can arrange “breathing space” while you seek regulated debt advice. During this time, interest, charges and collection action are suspended to help people seek the right kind of support.

In their recent manifestos both the Conservative and Labour parties are promising to extend this scheme across the UK, meaning borrowers can apply to have six weeks of “breathing space” – but is this enough to tackle growing debt problems?

How long would be enough?

Some consumer groups consider the current 6-week breathing space period too short for an individual to fully regain control of their problem debt. While it might be enough time to logistically contact creditors and seek regulated advice, this might not offer the time needed to resolve the issues that have led to debt in the first place.

There is often a narrow view of debt, an idea that someone with financial problems is someone can’t control their spending or borrows to fund a lavish lifestyle – in this case, 6 weeks may well be enough to gather some control and reallocate money appropriately.

Sadly, the counterpoint is far more common – what happens for the people who have found themselves in debt because uncontrollable circumstances mean there are simply no funds, no money to pay the rent, no means of putting food on the table? 6-weeks can feel like a painfully short window for someone who is facing chronic illness, a change in employment, divorce or bereavement.

The UK financial picture

The Bank of England offers a true picture of lending in the UK. We owe over £1.5 trillion and while a large percentage of this is mortgage debt, it still leaves an enormous £68 billion owed to credit card companies – and over £130 billion to other lenders – including car finance, overdrafts and personal loans.

These figures look increasingly problematic when compared to the resources that individuals have in case of financial emergency. Nearly 17 million people have less than £100 in savings – and studies show that 75% of people will experience at least one large unexpected cost or bill each year. This leaves a huge amount of people in a situation where there is no financial buffer zone, and crucially, in terms of “breathing space” – no quick 6-week fix.

Wages don’t last a month

The Citizen’s Advice Bureau also says it has seen an increase in working people turning to credit when their wage doesn’t reach to the end of the month. This is a dangerous cycle, each passing month compounds a person’s out-goings – putting people in a situation where they are unable to catch up with an increasing amount of debt.

It’s dire situations like this that have seen the UK’s use of food banks continue to increase over the past year. As these cycles continue, the amount of time needed to remedy the increasing debt problem extends.

What can be done?

Debt charities have called for the amount of breathing space to be extended from 6-weeks to 1 year – suggesting this longer period allows for the rebuilding of lives and finances that is often needed after relationship breakdown, bereavement, redundancy and other life changing circumstances.

While this would definitely be a move in the right direction for people who are struggling to get back on their feet, politicians are being urged to looked at the source of the problems, instead of just trying to ease the symptoms.

Problem areas

Car finance deals – Consumer groups frequently highlight issues with car financing packages that often keep drivers tied-in to a never-ending cycle of new cars, without absolutely transparency or predictability around practices and cash input needed from individuals.

Experts make dire predictions for the future of the car industry in relation to finance packages, citing similar irresponsible lending patterns to those seen in property markets prior to the 2008 financial crash.

A move by politicians to encourage investigation by the industry regulator could mean a move toward greater clarity and predictability for those who need a car but also need to be able to maintain a tight working budget to avoid further debt.

Mental health and debt – There is now overwhelming evidence to support the links between mental health issues and debt. The problem can begin with either factor appearing first:

Attitudes around mental health issues often mean help is sought later, with underlying conditions already having impacted on life. It is not uncommon for mental health problems leading to an inability to maintain employment – resulting in the use of credit to get through the difficult time.

At the other side of the problem, there are the mental health issues that created or worsened by the addition of debt. Where debt begins to spiral, so does the associated stress and anxiety. It is clear to see that debt and mental health is an exceptionally complex area in need of constant review by politicians and health services.

Credit cards, store cards and impulse debt

Whether you shop in store or online, you don’t have to go far before you are offered credit – and like a retailer’s physical products, the aim to remove as many barriers to a consumer obtaining that financial product as is possible.

It is crucial that government holds the regulatory bodies accountable for the protection of consumers in a world where credit forms an important and significant part of a retailer’s income. In cases where this lending doesn’t stand up to responsible guidelines, there are calls for interest and charges to be cancelled.

What’s the conclusion?

For someone experiencing problem debt there is no doubting that any amount of breathing space is welcome if the alternative is more interest and charges. The government rolling out these breathing space plans across the UK certainly offers a person time to find the right advice and support.

However, when it comes to debt, the phrase ‘prevention is better than the cure’ could never be truer – and measures that ease suffering should never be favoured over measures that keep people from spiralling into debt in the first place.

If you need more information about the options available to you in dealing with your debt, you can always speak confidentially with one of our friendly advisors on 0808 2085 198.

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To qualify for debt write off in an IVA with Creditfix, you must have a minimum of £6000 of qualifying unsecured debt owed to two or more creditors. A debt write off amount of between 25% and 75% is realistic, however the debt write off amount for each customer differs depending upon their individual financial circumstances and is subject to the approval of their creditors.